The ISM Manufacturing Report for March 2010 showed almost across the board increases. Only employment (at 55.1) and the backlog of orders (at 58.0) decreased slightly, meaning both increased, but at a slightly slower rate. Exports also increased at a faster rate, as did every other component of the index.
The overall index increased to 59.6, the highest since July 2004. Indeed, this is the strongest ISM number since the 1982 recession, with the exception of 9 months in 1984, 2 in 1987, and 8 in 2004. There is simply no doubt now that manufacturing is having a V-shaped recovery and is leading the way in the economy.
Here are the sample quotes provided by the ISM:
• "Certain markets served have increased by 50 percent in new customer orders, while other markets are not as strong." (Miscellaneous Manufacturing)As to employment, the ISM said:
• "Business levels continue to be strong coming out of the Chinese New Year. First quarter will be our best since 2000." (Machinery)
• "Business is steady and prospects are good for Q2." (Food, Beverage & Tobacco Products)
• "After-market sales are improving as more vehicles require maintenance." (Transportation Equipment)
• "There is a serious shortage of basic electronic components, and lead times are becoming a problem. We are also seeing dramatic price increases." (Computer & Electronic Products)
This is the fourth consecutive month of growth in manufacturing employment. An Employment Index above 49.8 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.Although it would have been nicer had the employment index increased, showing faster growth, this is an almost perfect report, and its leading component adds to the likelihood that March's Index of Leading Indicators number will be quite good, meaning continued growth in the next 3-6 months.
Here is a chart of the overall ISM reading:
This is not simply a one and done situation -- that is, we aren't just seeing one good number out of a series of bad numbers. This number has continued to rebound from low levels for some time -- as in over one year. The shows the underlying economy is strengthening and has been for some time.
In addition, consider this chart of the industrial sector:
Prices are in a strong uptrend (A) and the EMA picture is strong -- shorter EMAs are above longer, all EMAs are rising and prices are above all the EMAs. The two problems with this chart are the same problems that exist with the larger averages -- momentum is decreasing (C) and the money flowing into the security is slowing (D). The last two indicate we may be setting up for a correction in the near term.